A Startup Company’s Experiences with Open Innovation-Part 1: Dealing with a Large Company Having Small Innovation Goals

When in licensing discussions with large companies, startup companies must be willing to call off the relationship when the collaboration will not bear fruit.

For the past several months, I have been at the helm of Evgentech, a startup company with game-changing battery charging methodology. Our technology was developed by young men who did not come from a traditional engineering background and, even then, their discovery was a serendipitous result of the co-founders’ recognition of a new principle stemming from investigations initially directed toward something wholly different from battery charging. Put simply, Evgentech’s technology would not have been found if anyone–outsider or not–would have been looking for it. We are now bringing to market the first truly new battery charging paradigm in over 100 years. To put things in perspective, with Evgentech’s technology, you will be able to charge your batteries in a fraction of the time possible with existing battery charging methodologies, which means you can charge your iPhone to “full” in as little as 20 minutes, as compared to the about 3-5 hours it takes today. Moreover, our technology is scalable to large format batteries, as well as a wide range of battery chemistries.

Not surprisingly, when companies with footprints in battery power find out about us, they are interested in finding out more. We have recently begun preliminary discussions with a number of large companies, and I am seeing significant differences in the ways potential partners interact with us as a startup company, and I would like to share my point of view on occasion as we move forward. I think this perspective can be of value to other startup up companies seeking to work with large companies, and perhaps our licensing journey will make it into a book one of these days. (Interestingly, I have been giving people advice on licensing for many years, but when it is your technology, the perspective is certainly different.)

At this early stage of our licensing and commercialization journey, one thing I noticed straightaway is that there can be a real disconnect between the meaning of “innovation” between small and large companies. Some–perhaps most–large companies appear to view innovation as a “super” product development team. These are the folks who look for breakthroughs, but these so-called “breakthroughs” are expected to slot into an existing product or project at the company. It’s almost like many large companies consider innovation to be the result of product development, instead of being the process of creating new products. It is also significant that, for most of these companies, a wrong bet on partnering might set them back a bit, but it likely won’t put them out of business.

In contrast, at a startup like Evgentech the “innovation” is our whole business, which has been developed wholly independently of the products and timelines of the other company. At this stage, almost 100% of our value is embedded in our innovation offering, and we must nurture and protect our sole asset. Significantly, at this stage of our existence, if we bet wrong on a partner, we could very well be out of business. We must be clear headed about who we choose to partner with and not get excited because a “marquee name” wants to talk to us, or we will set our company up for failure.

Our first potential partner was such a marquee name. We were selected by this Fortune 500 consumer products company through a well-known open innovation facilitation service. In the process, the company sent out an RFP seeking innovations to make large battery powered products easier for their customers to use. Because our technology could reduce recharging time from the current 5-8 hours to 1 hour or less, the company would be able to reduce the size of the battery needed, which would make their product much lighter and would potentially open the market to many more consumers. We were notified quickly of the company’s interest in talking to us.

We were initially excited about working with this company because our technology could conceivably broaden the number of consumers who would select a battery powered product over the existing internal combustion engine powered options (which are fairly light and powerful). Moreover, this company is one of the largest sellers of battery powered products in the US, and we initially believed their adoption of our solution could significantly differentiate their multiple product lines in a highly competitive marketplace. In short, we perceived that Evgentech’s technology could provide a significant innovation for this Fortune company, which would result in both of us making a lot of money from a collaboration.

However, they didn’t appear to view our technology in the same way. . . .

At the front end of the process, the Fortune 500 product development team asked us to send written technical information (under a strong CDA, of course). It was quickly clear that they did not wish to develop an ongoing relationship with us, but instead only for us to show them what we had. It was sort of like we were viewed as suppliers of innovation from which they could shop for solutions to their product needs. It therefore should not be surprising that the team did not recognize the potential value of our early stage technology for their company that exists today in prototype form only. At their request, we effectively threw complicated information over the proverbial wall and waited for their response. A few weeks later, we received a list of emailed questions that indicated that the team had reviewed our technology against the framework of existing technology. At this point, I told my team, “We could burn through all of our money trying to convince these guys we can change their business, but they might not ever get it in time for us to remain a viable company. Let’s cut them loose.” And we moved on, leaving them a bit surprised when we effectively said “we’re not that into you.”

In retrospect, they clearly didn’t understand the breakthrough accomplished with our technology, and they apparently were not interested any product solution that did not fit into their existing infrastructure without much modification. They didn’t see that our technology could change the game for them because they were playing a different game than us. But even if they had seen that we could change their business for the better, it appears that the innovation team of this Fortune 500 company was not incentivized to change their company’s future.

We learned much from this experience, and have modified our potential partner intake to specify “strong innovation mindset” because we recognize that unless a company is already wired to understand the opportunities that our technology will provide their company, they have a low likelihood of being successful in getting to market with our disruptive technology. And, if they aren’t successful, we won’t get paid.

More specifically, moving forward, we will only engage with potential partners with infrastructures that understand the distinction between “big I” innovation and “little I” innovation. Evgentech technology is the former. We don’t slot into an existing product framework at this Fortune 500 company, and we need to talk to companies capable of nurturing our technology through the commercialization process to reap the huge market benefits our methodology can provide in battery powered products.

In this regard, we have taken the lessons of Clayton Christenson in his great book, The Innovator’s Solution, where he advocates that companies seeking “big I” innovation seek to develop potentially game changing technology outside of the regular product development process, preferably with teams located away from core functions of the company, and with a different corporate reporting structure. A big portion of our partner vetting process going forward will relate to asking questions like these. At a minimum, if the person on the other side of the phone has not read any of Christenson’s books, we probably don’t want to have a second call.

As someone who has worked at a large corporation and recognizes the organizational effect of silos and improper incentive alignment, I should note that it is highly likely that our point of entry into this Fortune 500 consumer products company was all together the wrong one. Indeed, those people who manage the long term strategy for this company might be appalled by the way our technology was handled. But, as a startup entrepreneur, I must recognize that a company that puts R&D and product development personnel as the point of entry for externally-developed innovations is probably not the right first partner for us. Moreover, it is not my job to tell them what’s wrong (at least from my perspective as an IP and innovation strategist) with their internal innovation processes.

To use a metaphor I have used before, licensing into large companies is much like dating. If one is seeking a long-term partner for a mutually beneficial business relationship, like my company is, you have to good picture of who your perfect mate is prior to your first date. And, you must be able to read the signals at an early stage to see whether they are a good long term partner for you, or else both parties will waste time. For startups like Evgentech, time is the most precious commodity. To this end, I am planning all the ways I can tell large companies the equivalent “I think we should see other people” in the coming months.